INDIA, SINGAPORE, MALAYSIA : Fortis and Khazanah in bidding war for Parkway Holdings

Fortis Healthcare, India’s second largest healthcare chain, has offered US $2.3 billion, for the three-quarters of the Asian hospital operator Parkway Holdings that it does not already own. The offer from Fortis follows an attempt by Khazanah Nasional, the state investment fund of Malaysia and a major shareholder in Singapore-based Parkway, to take control from Fortis by raising its stake from 23% to 51%. Khazanah offered $835 million in May to gain the controlling stake in Parkway. Fortis’s bid is likely to prompt a counterbid.

Fortis sees Parkway as being the centre in Singapore of an international medical empire and a step toward building a pan-Asian presence. Fortis with Parkway would have 12,200 beds and generate $1 billion in annual revenue. The margins with Parkway are much higher than current margins in India as health care costs in India have traditionally been low. The long-term goal of hospital chains like Fortis is medical tourism. Parkway operates hospitals in Singapore, Malaysia, India, China, Brunei and the United Arab Emirates. In India, Fortis expects a 30% in medical tourism patient numbers. In 2009 Fortis had 4000 medical tourists that contributed 10 per cent to the company’s total revenue, with the number for 2010 is expected to be over 5000. Parkway’s hospitals attract patients from Indonesia and the Middle East.

Brothers Malvinder and Shivinder Singh, who run Fortis, are moving to block Khazanah from gaining control of Parkway’s 16 hospitals in Asian countries, where health-care spending is increasing annually. Khazanah owns a stake in Apollo Hospitals, Fortis’ main competitor in the Indian healthcare market. Malvinder Singh plans to integrate Fortis with Parkway and operate the combined group of 68 hospitals in eight nations, from Singapore.

The bid for Parkway is a bold one but local markets are not sure how the Singh brothers will pay for this bid and worry that they could be paying too much. Once Fortis is folded into the Parkway umbrella, the synergies of scale from collapsing the two entities into one will be significant. The Singhs are believed to be negotiating with banks for short term funding to support the bid. Fortis may have control now but the crunch may come if a bidding war escalates. While the Singhs are dependent on private finance, the Malaysia government has funds from various sources available. State-owned oil company Petronas, owns a luxury 300-bed hospital in the country's capital, Kuala Lumpur, built two years ago in part to promote medical tourism, and has been looking for other investment opportunities in the sector.

The two offers share a common belief that rapidly growing demand for quality health services in Asia represents a unique business opportunity and that whoever controls Parkway will be in the best position to grow within Asia and beyond, and benefit from the rise in both medical tourism and health insurance in Asia. Malaysia’s state interest in Parkway is that it holds 24.1% of Parkway outright through Khazanah Nasional, the state-owned investment fund, and owns 60% of a Malaysian Parkway affiliate. Parkway also generates 26% of its revenue in Malaysia, while Parkway offers the opportunity to grab a leading position in high-end health care, an industry the government has singled out for strategic growth. For Fortis, Parkway offers a chance to expand from its base in India across the region, with both China and India representing big opportunities.